Super-Time-Stepping Scheme for Option Pricing

Authors

  • Kedar Nath Uprety Central Department of Mathematics, Tribhuvan University, Kirtipur, Kathmandu, Nepal
  • Harithar Khanal Department of Mathematics, Embry-Riddle Aeronautical University, USA
  • Ananta Upreti Central Department of Mathematics, Tribhuvan University, Kirtipur, Kathmandu, Nepal

DOI:

https://doi.org/10.3126/sw.v13i13.30539

Keywords:

Black Scholes Equation, Explicit Scheme, Super Time Stepping Scheme, Modified Chebyshev Polynomial

Abstract

We solve the Black - Scholes equation for option pricing numerically using an Explicit finite difference method. To overcome the stability restriction of the explicit scheme for parabolic partial differential equations in the time step size Courant-Friedrichs-Lewy (CFL) condition, we employ a Super Time Stepping (STS) strategy based on modified Chebyshev polynomial. The numerical results show that the STS scheme boasts of large efficiency gains compared to the standard explicit Euler method.

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Published

2020-08-07

How to Cite

Uprety, K. N., Khanal, H., & Upreti, A. (2020). Super-Time-Stepping Scheme for Option Pricing. Scientific World, 13(13), 51–54. https://doi.org/10.3126/sw.v13i13.30539

Issue

Vol. 13 No. 13 (2020)

Section

Articles